Pre-Qualification and Pre-Approval
Pre-Qualification not only starts the loan process, but it also should start the buying process. Meet with a Mortgage Broker and find out how much you can afford for a home. Once your Mortgage Broker or Lender has gathered information about your income,debts, and credit rating, a determination can be made as to how much the borrower can pay for a house. Since different loan programs can cause different valuations, a borrower should get pre-qualified for each loan type the borrower may qualify for.
In attempting to approve homebuyers for the type and amount of mortgage they want, mortgage companies look at two key factors. First, the borrower's ability to repay the loan and, second, the borrower's willingness to repay the loan.
Ability to repay the mortgage is verified by your current employment and total income. Generally speaking, mortgage companies prefer for you to have been employed at the same place for at least two years, or at least be in the same line of work for a few years.
The borrower's willingness to repay is determined by examining how the property will be used. For instance, will you be living there or just renting it out? Willingness is also closely related to how you have fulfilled previous financial commitments, thus the emphasis on the Credit Report and/or your rental payment history.
It is important to remember that there are no rules carved in stone. Each applicant is handled on a case-by-case basis. So even if you come up a little short in one area, your stronger point could make up for the weak one. Mortgage companies could not stay in business if they did not generate loan business, so it is in everyone's best interest to see that you qualify.
Pre-Approval takes the loan process one step further. Pre-Approval indicates that the Lender has completed its underwriting and has approved your loan. To Pre-Approve a loan, the Lender reviews the borrower’s credit in detail and completes a thorough financial background check. Sellers are much more receptive to buyers who have been Pre-Approved, especially when faced with multiple offers to purchase.
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Define Your Needs and Desires
One of the most important ways you can reduce the amount of time and stress involved with buying a new home is to clearly define your needs and desire prior to starting your house hunting. The more precise you make your search criteria, the more effective and timely your search will be. The following is sample of some of the things every Buyer should consider:
Once your list is made, you should circle those items that are “Must Haves” versus items that you could live without, if necessary. You probably won’t be able to get everything on your list, so it is important to prioritize.
Another item that goes hand in hand with defining your needs and desires is to remain objective. It is very easy to become emotional about the home buyer process. After all, it is one of the biggest decisions you will make in your lifetime. Nevertheless, it is important that you continue to remain objective throughout the whole buying process and stay focused on what your defined needs and desires are. A good real estate agent will definitely help you in this regard.
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Hire Professional Representation
An experienced licensed real estate agent can help you avoid costly mistakes and can make your home buying experience more enjoyable and less stressful. The cost of the real estate agent’s services are not paid by the Buyer, but instead paid out of the commissions that are paid by the Seller. Therefore, why would you try to deal directly with the Seller when you can take advantage of your Real Estate Agent’s experience of buying and/or selling homes.
It is important to know and understand if your agent is going to represent only you or if they are also going to represent the Seller. Your agent must fully disclose and explain their relationship to you. Dual agencies can create conflicts of interest during purchase and sale negotiations. You need to ask yourself if your agent representing your best interests or is he representing the Seller’s?
Find your Home
The process of house hunting can be quite overwhelming if don’t do some homework upfront. As part of defining your needs and desires, it is important to define what areas you want to live. Do some research of your own before the process gets started. You can visit a few areas that might be appealing to you and see if these are areas are suited to your needs and desires. Could you see yourself living in these areas? You can also review local real estate publications (many are free) and surf the web as information is abundant.
Once you have narrowed down the areas you would like to search, have your real estate agent do the initial scouting of available properties in the area. Your real estate agent will then use your wish list as a guide to assemble a list of available properties and will arrange tours of the homes that interest you at your convenience.
Make an Offer
Before you make an offer, make sure that your real estate broker prepares for your review a Comparative Market Analysis, which will detail what similar homes have sold for in the area. A well thought out and presented analysis should support the price you are going to pay for the home.
Once you and your agent have agreed to an offering price, your agent will then draft a written contract, which will detail the basic business terms of the purchase and also the responsibilities of both the Buyer and the Seller. Make sure that you review this document carefully and ask your agent to explain anything that is not clear to you.
There are several items that can be negotiated in the purchase contract such as purchase price, closing costs, financing, repairs to be made, appliances and fixtures to remain, and move-in date. Negotiation of these items is common.
Rarely do Sellers accept your purchase offers with out any negotiation. Here is where the experience of your real estate agent becomes valuable. This is also a time when it is important that the Buyer remain objective and non-emotional. Don’t let relatively insignificant items kill a deal because you have become overly emotional.
Conduct a Thorough Inspection
It is very important that your purchase contract provides for both inspection and financing (mortgage) contingencies. In other words, the Buyer needs to have the opportunity to cancel the purchase contract within a reasonable period of time (usually 30 days) if the buyer finds physical issues with the Property or if the Buyer is unable to secure financing. Make sure that the purchase contract clearly spells out how many days the Buyer has to complete the inspection and to secure financing.
One of the first things a Buyer should do after the Seller accepts the purchase offer is to have the property inspected by a professional inspector. The results of a physical inspection report could save a Buyer thousands of dollars, if not years of headaches if a major deficiency is not discovered during the inspection. Your real estate agent should be able to recommend a reputable company to perform such inspection if you are unable to find one. Some of the major items your inspector should evaluate include the foundation, roof, electrical, air conditioning, and plumbing systems.
As part of the Buyer inspection process, you will want to request from the Seller copies of all existing warranties for any major work completed on the house, such as roofing, remodeling, air conditioning systems, etc. As for remodeling, make sure the Seller provides you copies of all final permits for work they have done on the home. Non-permitted additions could be costly to the Buyer in the future if the city ever requires you to bring up the room addition(s) up to code. If work is not done in accordance with city procedures, the homeowner could be required to open walls and tear up floors so that a proper inspection can take place.
The closing of your home purchase usually occurs at the offices of the escrow or title company. A closing officer will coordinate all the document signing and the collection and disbursement of funds. A few days before the closing date, the Lender will send a final closing statement that outlines your closing costs. Review this document with your real estate agent to ensure that it is accurate.